RBI's Neutral Stance and Robust Equity Inflows Support Market Stability

The Reserve Bank of India's shift to a neutral liquidity stance is anticipated to ease liquidity concerns, according to Jefferies. Despite recent market corrections and earnings downgrades, strong domestic equity inflows continue to bolster market sentiment, providing a cushion amidst fluctuating valuations and market challenges.

In a recent development, the Reserve Bank of India (RBI) has transitioned to a neutral liquidity stance, a move expected to alleviate prevailing liquidity concerns, as reported by Jefferies, an investment banking and capital market firm. This shift from a withdrawal stance has mitigated worries surrounding liquidity issues.

Jefferies highlights the convergence of credit and deposit growth rates, contrasting with a significant gap witnessed last year. Improved deposit growth, combined with easier liquidity conditions, is set to support banks' net interest margins, further stabilizing the financial landscape.

Despite encountering market corrections, particularly in small to mid-cap stocks, robust domestic equity inflows—averaging USD 7.5 billion monthly—have provided a sturdy market cushion. These inflows continue to outpace the supply of equities, buoying market sentiment and cushioning against the highest earnings downgrade wave since 2020.

(With inputs from agencies.)